General Assembly budget analysts are estimating that Gov. Robert L. Ehrlich Jr.'s proposal to install slot machines at Maryland racetracks will bring in $245 million less revenue than the administration expects during the next two years.
The Department of Legislative Services based its prediction on an assumption that it would take longer than the administration has estimated to get 10,500 machines running.
Warren Deschenaux, director of the nonpartisan Office of Policy Analysis, said legislative analysts believe it is wise to base budget decisions on a conservative estimate of revenues. "You don't want to budget something new on a best-case basis," he said.
The analysts' doubts about the governor's budget forecast came as a top Ehrlich aide signaled yesterday that the administration might be willing to soften its proposal to impose one of the steepest gambling taxes in the nation to benefit schools.
Joseph M. Getty, Ehrlich's policy director, said yesterday that any move to cut the 64 percent share for education called for in the Ehrlich bill would be up to the General Assembly. Racing interests and local governments have complained that the administration bill gives them unsuitably small percentages of the profits from slots to offset their costs.
"We've made it clear to the legislative leaders that the distribution figure isn't etched in stone," Getty said. Asked whether the state's share could come down, he said: "That's the assumption, yes."
Industry presses case
Racing industry executives and their representatives were in Annapolis yesterday meeting with legislators and Ehrlich administration officials, including chief legislative officer Kenneth Masters, as they pressed their case for changing Ehrlich's proposal, sources said.
House Democratic leaders said it would be difficult to get lawmakers to take the initiative in cutting the state's percentage dedicated to schools and giving more to the racetrack owners.
"Impossible," said House Majority Leader Kumar P. Barve. "Why would anybody vote for that?"
Senate President Thomas V. Mike Miller, a supporter of slots, said the Senate would not shy away from adjusting everyone's share. "It's never politically difficult to do what's right," the Prince George's County Democrat said. "That means finding a workable bill for everybody."
The administration's signal of flexibility comes amid increasing uncertainty about the reliability of the numbers that the administration is using in promoting its slots legislation - the centerpiece of its legislative agenda.
Legislative projections eliminate the $45 million the administration expects to receive from slot machine taxes in the last quarter of the next budget year. The analysts - part of the legislature's professional staff - also estimate that the machines will earn $400 million, rather than the governor's projected total of $600 million, the following year.
The projections assume that only 6,000 of the 9,000 slot machines the administration expects to be in operation at three racetracks in the summer of 2004 will be ready. If that happens, the budget gap projected for two years from now would grow by $200 million, to almost $1 billion.
Barve, a Montgomery County Democrat, accused the administration of "grossly overestimating" the amount of money that slots would bring in. "The numbers don't make any sense," he said.
Former state Sen. Martin G. Madden, an adviser to Ehrlich, said the administration is confident in its estimates of how quickly the machines will be installed and how much money they will generate. "Despite these differences, I think they are acknowledging that there is a significant amount of revenues for Maryland to recapture from Delaware and West Virginia," said Madden, naming two neighboring states that allow slots at racetracks.
The new projections were disclosed as legislators reviewed the text of the Ehrlich slots bill, which became available on the General Assembly's Web site over the weekend.
'Long way from home'
Legislators on both sides of the slots debate have criticized the administration's plan, suggesting the legislation will need a substantial overhaul. "We're a long way from home. We're on first base, and we're struggling to get to second," Miller said.
Independent experts and industry executives have questioned the viability of Ehrlich's plan. They say the 24.8 percent share of the profits for the industry isn't enough to cover the costs of building new facilities, steep licensing fees and other expenses.
Thomas Bowman, president of the Maryland Horse Breeders Association, said he is pleased the Ehrlich administration and key legislators appear open to the idea of adjusting the formula for how slots proceeds would be divided.
House Speaker Michael E. Busch, an opponent of slots, said the glaring flaw of the bill is that it demands too little of the horse racing industry.
"There's a huge void in that there's no plan by the racing industry to lay out some kind of initiative that would revitalize the following of the audience so they would become self-sufficient," Busch said.
Some legislators who have read the bill expressed surprise at provisions that were not discussed when administration aides outlined the plan last week.
One section would let an applicant for a slot machine operator's license receive a waiver postponing payment of a $50 million to $100 million application fee until the last day of the 2004 fiscal year. The bill does not spell out how the budget would be balanced if an applicant failed to pay the money on the last day.
Getty said the real deadline is March 31, 2004 - three months before the fiscal year ends. He defended the waiver provision as a "safety valve" to allow for unforeseen circumstances.
Sen. Ulysses Currie, chairman of the Budget and Taxation Committee, said the provision surprised him. "I think we'll have some concerns with that," the Prince George's County Democrat said.
Another provision would let racetracks recover most of their up-front fees if their slots operations are unprofitable or if their licenses are revoked.
Getty said the sections were included as a matter of "fair business dealing."
Currie said lawmakers likely won't allow that to happen. "If I start losing money on the stock market, they don't give me my money back," he said.
Sun staff writer Greg Garland contributed to this article.